1 Submission to the Standing Committee on Infrastructure, Transport and Cities Inquiry into Options for Financing Faster Rail Steve Skinner, March 3, 2020 All references and more photos available on request Please also see the attached 2019 academic research carried out for the University of Sydney, which contains a lot more detail on land tax and urban transport value capture. Barangaroo Station under construction with Crown's Sydney The Murray Valley Highway between Cobram and Yarrawonga, casino development rising in the background, October 2019 Victoria, March 2019 THE GREAT DIVIDE SUMMARY Governments are reluctant to properly tax landholders in Sydney, Melbourne and Brisbane on the sometimes-massive windfall gains they enjoy from roads and rail lines being built on or near their properties. This situation is making the playing field of opportunity between country and city people in Australia more uneven than it already is. And it is depriving communities of vital government funds – including for investment in safer regional roads and rail lines. Before governments consider “value capture” to help fund faster rail between major capital cities and regional centres, they need to learn lessons from the failure to properly tax the land-holding beneficiaries of road and rail projects within the big cities. To show the need for reform of the current system, this submission outlines numerous case studies from Sydney, Melbourne and Brisbane of individual landholders getting what look like great deals courtesy of the taxpayers’ spending on transport. CONTENTS Introduction Fire Insurance Fiasco 2 Winston Churchill’s Dilemma Barangaroo Bonanza Martin Place Motza No Federal Strings Attached? Airport Land Values Take Off Cash Cows Wilton Housing Handouts Melbourne Fringe Fortunes Melbourne Rail Riches Brisbane Beneficiaries Rezoning Rewards Unfair Regional Funding? Regional Rail Neglect? Introduction The amount of government money to be spent helping victims of the recent devastating bushfires sounds impressive. The Federal Government is allocating $2 billion for its bushfire recovery fund. The NSW Government has pledged $1 billion for an infrastructure repair fund. But $3 billion is less than half what these same governments are spending on just one new rail line through marginal seats in Sydney which even their own advisers say won’t be needed for many years. And $3 billion is just the cost of the blowout alone on a separate new Sydney rail line which will now cost more than $15 billion. Meanwhile, the biggest winners from all the new big city roads and rail lines are landholders who often don’t contribute much, if anything, towards their construction. The bigger beneficiaries of government charity at present are these city landowners, not people devastated by bushfires. Railway stations in particular can enable lucky landowners nearby to see their property values increase two, three or four-fold. Both city and rural landowners will benefit hugely from faster passenger rail stations being built on or near their properties. So, there needs to be serious implementation of “value capture”, not the token effort we have seen in the capital cities so far. The definition of value capture assumed in this submission is some form of tax on the uplift in land value which occurs when governments build a new road or rail line – or both – which makes land in the catchment area more attractive for property development. 3 Most independent experts and the development industry seem to agree that the ideal form of value capture is a broader form of annual land value tax compared with the current system. For example, the current land tax only applies to owners of commercial or industrial land, but not to farmers or private homeowners – the latter accounting for the majority of land value in Australia. As several inquiries have concluded, unlike taxes on capital and labour, taxes on land don’t affect people’s incentive to “have a go” and be “lifters” in the economy. And amongst the many other virtues of taxing land is the fact that you can’t hide land in a tax haven. Land tax supporters have included everyone from Milton Friedman on the right to Marxist economists on the left. Yet Australia’s booming capital city land values are taxed very lightly compared with what wage earners and businesses must pay on their sweat and toil. Melbourne land lot prices are reported to have doubled over the past decade and risen by more than 60 per cent in Sydney. But wages have stagnated in that time. Economists say a broad-based land tax – i.e. including the family home and urban farmland – would help act as an “equalizer” between city and country, because cities enjoy most of the population growth and economic activity that comes with it, and therefore their limited supplies of land should be more highly taxed. Government advisory body Infrastructure Australia says if governments don’t bring in a broad-based land tax, they should at least use “other value capture mechanisms”. There are lots of these to choose from, each with their own pros and cons. One example is betterment levies when land is rezoned for far more valuable uses, for example from agricultural to residential or from industrial to high-density residential. There might be another fee at the actual development approval stage, and/or or when higher floor space ratios are allowed. The Australian Capital Territory has a 75 per cent “lease variation charge” (LVC) along these lines, and Singapore has something similar. The Property Council of Australia opposes Canberra’s LVC, but isn’t against transport-related levies per se (with conditions). In its submission to this inquiry the Property Council supports an additional levy applied to developments “when the provision of new infrastructure is accompanied by a significant rezoning to increase density and change-of-use”. Another example of a possible value capture mechanism is an annual metropolitan-wide “transport levy” on both homes and businesses to help cover transport infrastructure spending which country areas usually don’t benefit from. Such a levy would avoid what the Property Council calls “politically designed hardship zones” subject to localised forms of value capture, presumably such as levies on properties within a kilometre of new rail stations. Then there is the idea of a special high-rate capital gains tax on benefiting landowners to pay for transport, to be collected by the Feds and given to the states. At present, capital gains tax is paid to the Federal Government only, at whatever your marginal rate is – and with a good accountant you can get that down to 10 per cent via a self-managed super fund, for example. No form of value capture is ideal but neither is taxing businesses and workers a third of their profits and wages. 4 The revenue foregone in not using value capture doesn’t just apply to NSW. Victoria and Queensland are good at letting land-owning beneficiaries of their massive capital city transport programs largely off the hook too – at least compared with what they could be contributing. The alternative is continued reliance on taxes, tolls, debt and privatisation of public assets. Fire Insurance Fiasco A frightening number of bushfire victims in NSW didn’t have insurance, and no wonder, when in NSW the insurance industry says premiums are at least 25 per cent more expensive than they need to be. That’s because the NSW Government has so far failed to follow the lead of most other states and base a contribution for its fire and emergency services levy based on land value. Instead, the Government taxes people who do the right thing in trying to look after themselves, by taxing insurance policies. It’s yet another example of a crazy land taxation system (or rather, lack of) which most people don’t know about, and most media in the big cities don’t care about. But other people are concerned and want a much bigger tax contribution in general from landowners. They include just about every economist in Australia; planners; developers; big businesspeople; government advisers; and a lot of politicians. Indeed, it’s official Federal Government policy that if the states want money for major transport infrastructure, they must hit up land-owning beneficiaries for a contribution. But the Feds aren’t uniformly enforcing this rule. More on this later. Meanwhile, The Australian recently reported that two state treasurers – NSW Liberal Dominic Perrottet and Victorian Labor’s Tim Pallas – both want annual land tax to replace the stamp duty despised by most economists. The ACT Government is approaching the half-way mark in doing this over a 20-year transition period. Replacing stamp duty with a broadened annual land tax might be an imperfect solution, because stamp duty has some virtues. But consideration of presumably taxing the land value of the family home is a sign that political bravery is possible, despite the understandable reluctance of politicians to tamper with the holy grail of many Australians – speculative gains from property ownership. Most politicians also seem reluctant to consider politically difficult measures which would reduce the need for multi-billion-dollar new roads and rail lines in the big cities in the first place. These include congestion charging on roads according to location and time of day; allowing more medium and high-density development in established middle-ring suburbs; lowering the rapid rate of population growth; and pushing more population and jobs to the regions. Winston Churchill’s Dilemma After the Committee’s two previous reports involving value capture, there is no need to convince the members of this committee of the concept’s virtues, so the rest of this submission will outline some of the many case studies of apparent missed opportunities the Committee may not be aware of.